Starting a small business

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FF-Medic
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Starting a small business

Post by FF-Medic » Wed Nov 10, 2010 3:07 pm

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kerry75
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Post by kerry75 » Wed Nov 10, 2010 4:51 pm

I don't know personally of any books but they must be out there. Many of the skills and knowledge you employed before will transfer, e.g., keeping costs under control, attending to problems rather than ignoring them, knowing your clients' needs, etc. If you've had success in the past then you have great experience on which to draw.

Since you're buying an established business I would assume that the previous owner will be assisting you for some time. Make sure that he actually stays around rather than heading for parts unknown with your money.

Good luck!!

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Stuart01
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Post by Stuart01 » Wed Nov 10, 2010 5:19 pm

One quick item - you probably want to make sure the business is set up in a way that shields your assets, i.e., as a Limited Liability Company or a corporation. I set up a LLC (no attorney needed) - very easy to do here in Maryland and I understand easy to do in other states as well.

Good Luck in your new business! :)

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Taylor Larimore
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Buying a small business

Post by Taylor Larimore » Wed Nov 10, 2010 6:03 pm

Hi Medic:

If I were buying a business in which I had no previous experience, I would try to get a SCORE (Service Corps of Retired Executives) executive for assistance and advice. Their service is virtually free. Start here:

SCORE

As a former SBA executive, I will warn you that buying a going business can be a very risky thing to do for someone who has not had hands-on experience in the same type business.

Most for-sale businesses are for sale because the business is failing and the owner is trying to get rid of it. Your buy/sell contract is critical so be sure you have an attorney.

One trick is to demand true copies of prior tax returns. The owner may insist the business is doing better than shown on the tax returns. That tells you that if the owner will lie to the IRS, he/she is probably lying to you.

Good luck!
"Simplicity is the master key to financial success." -- Jack Bogle

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norookie
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Post by norookie » Wed Nov 10, 2010 6:23 pm

LLC as advised above, I'd also recommend. Last 4-5 yrs tax returns would be prudent too. TL's advice is priceless. No really, No tax returns for 5 yrs, inaccurate inventory or accounting, do not waste your time.
" Wealth usually leads to excess " Cicero 55 b.c

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FF-Medic
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Post by FF-Medic » Wed Nov 10, 2010 9:21 pm

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Bulldawg
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Post by Bulldawg » Wed Nov 10, 2010 11:09 pm

I have purchased and sold small businesses and here's what has worked for me:

A) Have your CPA and Atty review all tax returns, supplier
agreements, etc. Have the CPA try to discern how much, if any ,company and personal expenses
have been mixed.

B) Have your CPA give you a valuation for the business segregated by
real estate (if any), equipment, inventory, customer base ( goodwill)
as you want to know exactly what you're paying for

C) Structure your deal using seller financing, i.e 25% down with
payments over 3 years for example

D) I always like to include an earn-out clause in the agreement. This
ties the final purchase price to the performance of the company, i.e.
if clients/customers are not retained until the end of the payment
term, the sales price is discounted.
" IN GOD WE TRUST " ( official motto of the United States )

SteveB3005
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Post by SteveB3005 » Wed Nov 10, 2010 11:53 pm

Bulldawg makes some excellent suggestions, the only exception I would take is to, D) The Earn Out Clause. I say this as it is dependent on the buying price in relation to your own estimated valuation and your view on the unrealized potential of the company.

If from the present owners side, the business is being offered at a discount allready or that the full potential is not being exploited, they will counter with an upside premium to the sale price. Earn Outs can and are often written to cut both ways. Meaning, if you come in and work your butt off and increase revenues you will lose a slice of those increased earnings.

You did not mention the size of this company, but if it's anything larger than an ultra-small Mom&Pop, get a CPA and attorney involved.

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Taylor Larimore
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Reincorporating ?

Post by Taylor Larimore » Thu Nov 11, 2010 7:15 am

Hi Medic:

You wrote:
The business is incorporated now and I will do the same.
You don't need to incorporate again. You might simply purchase the company stock.

On the other hand, you may want to buy only the assets (not the liabilities). Use an attorney.
"Simplicity is the master key to financial success." -- Jack Bogle

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FF-Medic
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Post by FF-Medic » Sat Nov 13, 2010 5:57 pm

The deal fell thru but thanks all for the advice and suggestions. It will be used in the future.

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